The Clean Development Mechanism (CDM) is one of the market-based mechanisms under the Kyoto Protocol used by Countries with commitments under the Protocol to limit or reduce their greenhouse gas emissions (GHGs) in order to meet their emission targets. It has been operational since the beginning of 2006. As of mid-2011, there were 6,292 projects in the CDM pipeline (see CDM project cycle below).
Renewable energy projects account for nearly two-thirds of CDM projects and include such things as hydro, wind and biomass projects. Methane avoidance, landfill gas, afforestation and reforestation, and energy efficiency projec are also common CDM projects.
CDM projects are extremely similar to Joint Implementation (JI) projects, another of the market-based mechanisms under the Jyoto Protocol, with one major distinction: where the project is based. Under JI, an industrialized country can meet part of its target by carrying out a project to reduce greenhouse gas emissions in another developed (Annex I) country. CDM is very similar, but the project activities must be hosted by a developing country. CDM projects are far more common than JI projects (6,292 to 437 as of mid-2011).
The CDM is defined in Article 12 of the Protocol, and allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol (Annex B Party) to implement an emission-reduction project in developing countries. Such projects can earn saleable certified emission reduction (CER) credits, each equivalent to one tonne of CO2, which can be counted towards meeting Kyoto targets. The mechanism is seen by many as a trailblazer. It is the first global, environmental investment and credit scheme of its kind, providing a standardized emissions offset instrument, CERs. A CDM project activity might involve, for example, a rural electrification project using solar panels or the installation of more energy-efficient boilers.
A CDM project must provide emission reductions that are additional to what would otherwise have occurred. The projects must qualify through a rigorous and public registration and issuance process. Approval is given by the Designated National Authorities. Public funding for CDM project activities must not result in the diversion of official development assistance.
CDM Executive Board
The CDM Executive Board (EB) supervises the Kyoto Protocol’s clean development mechanism under the authority and guidance of the Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol (COP/MOP). The CDM EB is fully accountable to the COP and MOP. The EB is the ultimate point of contact for CDM Project Participants for the registration of projects and the issuance of Certified Emission Reduction Units (CERs).
The EB is supported by the Methodologies Panel, Accreditation Panel, Registration and Issuance Team, Small-Scale Working Group, Afforestation and Reforestation Working Group, and the UNFCCC Secretariat.
Designated Operational Entity
The authority responsible for project certification is separate from the EB, although it is designated by the EB. A designated operational entity (DOE) under the CDM is either a domestic legal entity or an international organization accredited and designated (on a provisional basis until confirmed by the CMP) by the CDM Executive Board. It has two key functions:
- A DOE validates and subsequently requests registration of a proposed CDM project activity
- A DOE verifies emission reductions of a registered CDM project activity, certifies as appropriate and requests the Board to issue certified emission reductions accordingly.
Designated National Authority
In accordance with the CDM modalities and procedures, Parties participating in the CDM shall designate a national authority for the CDM. The registration of a proposed CDM project activity can only take place once approval letters are obtained from the designated national authority of each Party involved, including confirmation by the host Party that the project activity assists it in achieving sustainable development. The DNA is the authority who approves of projects and facilitates participation in CDM activities.
CDM Project Cycle
In order for an activity to become a CDM project and receive certified emission reductions, a seven step process must be undertaken. After completion of all the steps, the CERs will be awarded. The steps are:
Project Design Document (PDD): Prepared by the project participant, the project design document form was developed by the Executive Board on the basis of Appendix B of the CDM modalities and procedures. Project participants shall submit information on their proposed CDM project using the CDM-PDD form. In this form, the project participant must include a general description of project activity, application of a baseline and monitoring methodology, duration of the project activity and crediting period, environmental impacts, and stakeholders’ comments.
National Approval by a Designated National Authority (DNA): The DNA of a Party involved in a proposed CDM project activity must submit a letter which indicated that the country has ratified the Kyoto Protocol, the participation is voluntary, and a statement from the host party that the proposed CDM project activity contributes to sustainable development.
Validation: An independent evaluation of the project activity by a designated operational entity (DOE) against the requirements of the CDM according to the CDM modalities, procedures, and relevant Kyoto decisions is conducted.
Registration: A valid project submitted by DOE to the CDM EB must go through registration, which is considered the formal acceptance by the EB of a project activity. The registration process consists of a completeness check by the secretariat, vetting by the secretariat and EB, and possible review if a Party or three members of the EB request such review.
Monitoring: The project participant is responsible for monitoring the actual emissions according to their approved methodology.
Verification: The DOE then verifies that emission reductions took place in the amount that they were claimed to according to the approved monitoring plan. Verification occurs after the fact. After the reductions are verified, it receives certification, or written assurance, by the DOE entity that conducted the verification.
- CER Issuance: Lastly, the DOE submits a verification report with request for issuance to the CDM EB. In this request, the DOE includes the completeness check by the secretariat and vetting by the secretariat and EB that occurred in the registration process.
Although CDM projects are hosted globally, most of the CDMs projects are hosted in Asian and Pacific Island Countries. In that region, China and India dominate the CDM market. The countries with the largest number of CDM projects are China, India, Brazil, and Mexico, hosting about 80% of all projects.
CDM projects cover a wide array of topics, including replacement of district heating boilers (energy distribution), switching coal to natural gas (fossil fuel switch), solar thermal power (solar), and shifting from road usage to railroads (transportation).
N2O Emission Reduction in Onsan, Republic of Korea: Countries Involved: Republic of Korea (Host Country), Switzerland, Japan, Netherlands, United Kingdom of Great Britain and Northern Ireland. Project Description: The project activity consists of the installation of a dedicated facility to convert at high temperature the nitrous oxide into nitrogen based on the process of thermal decomposition. A boiler which generates steam with the high-temperature flue gas coming from the thermal oxidizer will also be installed. The installation of the decomposition facility will enable Rhodia Polyamide Co. Ltd to avoid N2O emissions (GHG emissions), which would in the absence of the project activity have been vented to the atmosphere. The installation of the decomposition facility would not only make Rhodia Polyamide Co. Ltd contribute to sustainable development by restricting the release of GHGs but will also give economic and technical benefits to the country by providing direct and in-direct employment and transfer of thermal decomposition technology to the country.
- Baji River Stage I 10MW Run-of-river Hydropower Project: Countries Involved: China (Host Country), Switzerland, United Kingdom of Great Britain and Northern Ireland. Project Description: The Baji River Stage I 10MW Run-of-river Hydropower Project is located in Yanyuan County, People’s Republic of China. It is a run-of-river project with the power density of 22.49W/m2 and is the first stage of the Baji River hydropower project as a whole. The proposed project will ease up the tension of local power supply. It will also reduce GHG emission and other pollutants emissions from the level if use was continued with commercialized power generation.